What Correction? Tech Stocks May Keep Market Rally Going

Amid calls for a broad market pullback that still has shown no signs of happening, technology is increasingly being seen as a sector to keep stocks afloat.

Wall Street Trader
Wall Street Trader

Market pros for weeks have been expecting stocks to take a breather from their meteoric rise off the March lows. But each time the indexes seem ready to retreat, buyers come along—especially those late to the rally—in hopes of catching some of the momentum.

Now, with several technology leaders projecting good times ahead, investors believe the pullback could be delayed even more.

"There is a lot of talk about this being a rally that's overdone, overbought," says Richard Sparks, senior analyst at Schaeffer's Investment Research in Cincinnati. "That kind of skepticism is also indicative that maybe not everyone has bought into the rally, not everyone is fully invested."

Sparks says small- and mid-cap names could be an even better place to look, but it was some of the bigger names in the space that were grabbing the headlines Friday.

Computer companies Dell and Intel both saw shares jump after they raised their sales outlook, while Marvell Technology also moved higher by raising its forecast even though its sales were disappointing.

While the tech rally fell apart on Friday, the sector is drawing perhaps the sharpest accolades in the market to keep a long-term rally going. The Nasdaq outperformed the other indexes even after the market turned negative.

"Tech has performed well since the bottom," Mark Demos, portfolio manager at Fifth Third Asset Management, told CNBC earlier this week. "But it has been underperforming the markets for the past month. Tech spending and consumption is going to be good enough—and we should buy heading into September."

The Nasdaq, which is generally considered the market's best indicator of tech stock growth, has outpaced its counterparts in a 10-day rally that has been among the market's best over the past decade.

The Nasdaq has gained about 5.5 percent in that time, while the Dow has moved about 4.5 percent higher.

"I think you're going to see tech strength that's long-lasting," Art Hogan, managing director at Jefferies, told CNBC in a separate interview. "You're probably safe in technology."

Hogan cited Dell and Intel among the companies he thinks will perform strongly, saying the big names are likely to be good bets even as the market could get a bit wobbly.

Growth in technology stock, in fact, could benefit most from a pattern that seems to be developing as the calls grow louder for a market pullback.

The sentiment for a move down has actually turned into a contrarian bullish indicator as buyers step in each time things get gloomy for the market. Moreover, the light volume is suggestive that many people missed the move higher because of lingering doubts over the economy, and many of those investors are now scrambling to get a share of the rally, nowhere more so than in technology stocks.

"Normally you top out when you have everyone piling into the market. We're not really seeing that in terms of investor sentiment," Sparks says. "If you look at it mechanically, it doesn't even necessarily need to be interpreted in a contrary fashion. There are still doubters out there. There is still money that has yet to flow into the market."